Cheap electricity for industry?: “Then lobbyists put pressure on”

Cheap electricity for industry?
“Then lobbyists put pressure on”

May 15, 2023, 5:00 p.m

The traffic light coalition has found the next bone of contention: the industrial electricity price. Federal Minister of Economics Robert Habeck wants to enable competitive electricity prices for industry with state aid worth billions. He proposes capping the price of most electricity to about half of current levels by 2030 for energy-intensive companies. This is to be financed by state aid of up to 30 billion euros. That of the FDP led Ministry of Finance strictly rejects the plans. In an interview with ntv.de, economist Rüdiger Bachmann says what he thinks of the plans.

ntv.de: Is the industrial electricity price a good or a bad idea?

Rüdiger Bachmann: I can’t make a clear judgement. There are some things that are problematic about it. But there are other things that speak in favor of the proposal.

Let’s start with the former. What speaks against it?

First of all, the electricity that is subsidized is not green, but rather brown, since it comes from fossil fuels. And it stays that way for the time being. Even as an economist, you get a stomach ache. Now, of course, you can say that you want to change that anyway by accelerating the expansion of renewable energies. But if you can really do it faster: Why do you actually still need the industrial electricity price? Opposing effects can therefore occur here: On the one hand, this subsidy could accelerate the necessary electrification, but on the other hand, it could also prevent any efforts by industry to invest more quickly in self-produced electricity from renewable energies. There is therefore a risk that the necessary structural change towards green energy will be unnecessarily slowed down.

The Federal Ministry of Economics argues: It is about supporting the energy-intensive industry in this transformation and helping it during this difficult phase …

That’s understandable. But first of all it has to be defined which industry is “energy-intensive” and which is not. There will be intensive lobbying to benefit from the subsidies. The industrial electricity price can lead to distortions of competition – not only in Germany, but also in the EU.

In what way?

If German industry gets cheaper electricity and there is more electricity demand in Germany than would be the case without subsidies, this will have consequences for our neighbors. After all, they also want electricity and then have to pay a higher price for it due to the overall higher demand. Other governments don’t necessarily have the fiscal capacity to counteract this with their own subsidies like Germany’s. Or if they do, there could be a subsidy race. In addition, consumers and other companies in this country also have to pay for this subsidy in the end. Do you want that in terms of distribution policy?

What speaks for an industrial electricity price?

If you only help energy-intensive industries that you absolutely want to keep in the country for geopolitical reasons, for example, and that would move away if electricity prices were permanently higher, then that would be an argument for subsidies. That would then be a task for society as a whole, which would have to be financed with taxes or levies. The federal government or the legislature would then have to define this very narrowly and in a well-founded manner. It’s not even clear to me if such an industry even exists. Another argument for subsidies would be the goal of temporarily helping industry on the way to green transformation – i.e. until electricity in Germany is so green and therefore at least so cheap that German companies can compete with countries, for example through quality advantages, which have renewable energy in abundance – such as Norway with water and wind and North African countries and Spain with solar energy. If the subsidy is actually not permanent and there is a realistic chance that the subsidized industries will remain in Germany even after the aid has ended, then the industrial electricity price is not devil’s stuff. First of all, it makes no sense to let functioning industrial structures break down because of temporary problems. And secondly, if things do go wrong, you have the political argument to the affected employees that you have tried everything. But then I still expect two things from the federal government: first, that they make this argument detailed and understandable for every protected industry. And secondly, that for administrative, legal or political reasons, it considers the industrial electricity price to be the only instrument that can be implemented quickly. Because economically, it must be said clearly, a price subsidy such as industrial electricity prices remains problematic for the reasons mentioned.

Electricity has long been comparatively expensive in Germany. Yet the industry is still here. Why should she suddenly leave?

There is, of course, a lot of rhetoric behind this. As soon as politicians discuss subsidies, lobbyists put pressure on them and talk about the threat of emigration. And what is particularly problematic: You can play this game again and again, at any time when the price of industrial electricity is about to expire. That is why it is politically so difficult to make subsidies temporary. And maybe you should just take a look at the economic history. This is full of examples of production being located where the price mix is ​​cheapest. Steel production settled in the Ruhr area because the coal was available there and did not have to be transported from elsewhere. The energy-intensive companies that produce in Germany are here despite the high energy prices, because there is excellent human capital here – such as engineers – and an attractive, stable legal and political environment. These benefits remain. There will always be changes. But that doesn’t mean that there has to be a complete upheaval of entire industrial structures.

Would it have been better to delay the nuclear phase-out further?

I honestly don’t know. I cannot estimate to what extent longer running times would have actually affected the price of industrial electricity.

Jan Ganger spoke to Rüdiger Bachmann